Caixabank SA

MAD:CABK

Earnings Call Transcript 2020-Q4

[Edward O'Loghlen, Director of Investor Relations]

Sorry, let me start again. I hadn't pressed the microphone button on. Good morning. I hope you're all well, and welcome to CaixaBank's results presentation for the fourth quarter of 2020.With us today is the usual management team of Mr. Gonzalo Gortázar, the CEO; and Javier Pano, the CFO. If you are a first-time viewer, please follow instructions on your screen to participate in the subsequent Q&A. We should spend around 30, 35 minutes on presentation and 45 minutes after that for live Q&A. Let me just end by saying that my team and I are available at the end of the call to take any remaining questions.And without further ado, let me hand it over to CEO.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Eddie. Good morning or good afternoon, depending where you are. I guess, good morning for most of us.I'll start with the highlights. We've seen the results now for a few hours. And I would like to highlight 3 things that I think are worth mentioning in 2020. One is activity and market share. Second is core efficiency, and positive jaws, and then its balance sheet strength, both in terms of asset quality and capital. I think these 3 things in a year that has been as difficult as 2020 are by themselves quite an achievement. And on top of that, we have also taken a very important decision, which is obviously, the Bankia project on which we've been working over the last 4 months. I think most importantly, for the timing, work is progressing appropriately. And we have been able to make sure that none of the organization, certainly not at CaixaBank, and you saw the results yesterday from Bankia, none of the organizations have really been distracted, been focused on our business.And to see what you see here, and I think, remark on market shares. One is long-term savings. Again, absolutely critical part of the business for us. A place where you're now used to see us gaining market share. But 2020 has been pretty good, and it's not been an easy year. This 23.3% of market share in the combined pension, mutual funds and long-term savings in terms of life insurance, quite remarkable, 79 basis points. And then on the business lending, another very significant market share gain. We have, as a result of our commercial activity with a pretty good level of activity in the second half and in the fourth quarter. We have been able to maintain core revenues and at the same time achieve a 4% reduction in operational costs. We'll discuss that later in the presentation. But obviously, the difference for the year between flat or minus 0.1% and minus 4% is quite important. And there's a lot of work behind that, both on the revenue and on the cost side, I have to say. It pleases me a lot to see these results. Coming, I would say, even earlier than expected, particularly on the cost side, obviously, also helped by the lower level of activity associated with the pandemic.And then balance sheet. Capital, obviously at very attractive levels. MREL, 26.3% versus 22.5% requirement. And obviously, at the same time, the reduction in nonperforming loans, both in terms of ratio and in absolute numbers, I think, all in all, makes a very satisfactory picture. And I have to say this is not a coincidence. It's not that we've been lucky. This is -- behind each of these line, there's a lot of work, a lot of people that have been in a very difficult year, actually delivering at their best. And again, I think that's also a good symptom for an organization to be able to do the best when the conditions and the circumstances are the most difficult ones.You know what those circumstances were in terms of the GDP evolution. By the way, we had results slightly better with minimal, but positive growth in the fourth quarter of GDP in Spain. So that minus 11.4%, now it's minus 11%, gives us -- it's a better base effect into 2021. But we have had, unfortunately, mobility restrictions that have been going on and on and even had to be more strict as the year went by, and we go into this third wave. You know what rates have done, the environment has been quite tough. And as I mentioned previously, we have actually done what we needed to be doing at every point in a year, so very satisfactory.Just a comment, you can see on the left with respect to our macro environment projections. We continue to have a scenario that is more conservative than that of Bank of Spain, both on the base and on the adverse case, which is also a good indicator of the fact that we are planning ahead the future and obviously into our provisioning models, et cetera, with a fair sort of degree of prudence and conservatism.I'll bring one page on ESG topics now every quarter. I've -- I cannot avoid talking about ESG in a year like this. And obviously, at the same time, I start to feel that actually, this is becoming more and more relevant for valuation of assets generally. And I think the main idea is we were born sustainable in 1904 because of our social roots. This bank has been different. It's not been a commercial bank and not listed up until now a decade ago, and the DNA that we have and what we do is very different. And I think this is something that we need to play in our favor, not just because we like to do it, but also because I think gradually more and more, the market is looking at these things. And certainly, our clients are looking at these things with a very different and much stricter point of you. In 2020, we have made substantial progress in terms of sector reputation, and that's not only CaixaBank, but the sector. This pandemic could have been disaster for the sector in terms of reputation. So far and all the analysis and studies we have indicated actual perception of the sector has improved, given what we've done in 2020. And you have here a few of the specific actions on the top of this slide of what we've done. I will not elaborate much on them because they speak by themselves. But this is not the usual. We had Euromoney giving us this excellence and leadership in Western Europe for our reaction to the COVID-19 crisis. Yesterday, we had Bloomberg putting us at a very top worldwide in the general quality index. Again, something that is a long sort of part of our culture, diversity in CaixaBank and where we have, obviously, room to improve, but we've done a lot. We're carbon neutral now for 3 years. We've been #7 globally in the Dow Jones -- Dow Jones Sustainability Index. We had a maximum rating in sustainable investment, A+ for both VidaCaixa and CaixaBank Asset Management and even BPI. And we have certainly a lot to say, a lot to explain. We'll do more of this. But we want to make sure that people that invest in CaixaBank associate themselves with the bank that is at the very top of the ESG agenda. And certainly, this is something on which we will continue to act and will increase the level of communication.Activity, government guaranteed loans. You've seen the numbers, I would just highlight the fact that 77% of these exposure has a guarantee of the government. So while we have 12.6% exposure only, 23% is our share of that exposure. And also that, as you can see, demand for these loans has been coming down substantially after June, and we see that precisely now. So this is largely an exercise that has been done, as well has been well done. And we feel obviously good. But certainly, part of these certain sectors will have an impact from the pandemic that would be higher, and there would be obviously consequences in terms of its impact. In terms of the moratoria, very good news. I think the fact that EUR 2.5 billion of this moratoria expired, mostly the consumer loan moratoria. And where we have had very limited impact. And as you can see, 98% of the moratoria granted is paid -- performing, no arrears at -- by year-end. And that basically all the consumer lending, which supposedly had a higher risk on it has behaved very, very positively, gives us quite a lot of confidence on this. This is not going to be a significant issue for us.Production levels, second half, fantastic. You can see there in terms of inflows and long-term savings between last semester of last year, obviously well above first semester. Protection insurance, absolute record, the success of MyBox, which has been building month after month is showing at its full. Loan production at fairly high levels, considering, obviously, the fact that the first half was extraordinary for a liquidity response to the COVID crisis.And on the household side, we've seen, obviously, some reduction in new production, particularly in the consumer lending, which is logical associated to this moment of the crisis. And where we expect recovery when restrictions are lifted and the vaccines finally allow us to reach herd immunity. There should be a strong recovery there.Market shares, I've discussed, very positive evolution. And you can see in terms of absolute levels of growth in on the loan portfolio and on the customer funds, record for the last 6 years. We have also seen a significant increase by 2 percentage points of our relational clients, and these are the ones that have 3 or more products that we obviously track.In terms of the P&L, core revenues being resilient, you can see how we see NII and fees and commissions coming down by just 1% despite the lockdown and the reduced activity. And then how insurance revenues basically compensate that fall. I would say we feel very good about having been able to stabilize core revenues at that level while reducing costs by 4%. That is certainly a very important highlight, returning to positive jaws in a big way in 2020 after quite a lot of effort.In terms of provisions, we have that increase. We have the EUR 125 billion (sic) [ EUR 1.25 billion ] sort of generic COVID-19 reserve. We feel that protects us very well for what may happen in 2021. We feel good about that level. Cost of risk now has -- finalized at 75 basis points, coincidently in the middle of the range that we announced. And as you have seen, we have decided to book EUR 311 million provision against our exposure to Erste to provide more conservative valuation given the impact of the pandemic and the current economic scenario, generally on banks throughout the world.Asset quality, I mentioned both the reduction in NPLs and the increase in coverage. Note that 67%, even this quarter, we have increased the coverage from 65 to 67. And obviously, we have pretty good news on capital levels. And I would say it's very rewarding to see also how we are well ahead in MREL requirement. I said 22.5% earlier, as you can see, it's now 22.09%, and we're at 26.3%. So another sort of pending subject that we've approved.Dividend, we are going to align ourselves with that maximum 15% based on the recommendation from ECB. That means that we'll be paying EUR 0.0268 per share that we will be proposing, and that will be payable upon completion of the merger, and hence, we'll extend that payment to both CaixaBank and Bankia shareholders, hence, the calculation has been done also on a pro forma for both institutions.Bankia, I would say, in terms of timetable, no news, good news. We continue to work well. There's a lot of work going by the people that are involved, the teams that are involved in the integration. So approximately 1,300 people working on it. So it's not a small effort. But that is still 3% of the workforce. So the remaining 97% is focusing on what needs to focus on since the day-to-day business. We had obviously a very strong level of support from shareholders and other EGMs, which we appreciate. And now it means that, obviously, we have to deliver. We're confident we will do, but a lot of work ahead of us. And certainly will keep us quite busy during 2021.And with that, maybe, Javier, you can take on from here.

[Javier Pano Riera, Chief Financial Officer]

Okay. Thank you, and good morning. And well, now I'm going to focus on the quarterly review, although I will also comment on the fiscal year in some aspects.Initially starting with evolution of the loan book. Already commented, but what you may see year-to-date, the performing loan book up by 7.6%. The main driver has been government guaranteed loans with this balance by the end of the year on ICO loans of EUR 12.6 billion, although you may see that the new production of those loans is tapering. In this quarter, we have grown by 1.1%. And I would remark a strong increase on the public sector. And, well, those are mainly short-term loans, up to 2 years at accretive conditions relative to Spanish government bonds, and it's a good investment in this excess liquidity situation.On the right-hand side chart, you may see the monthly evolution of the new production of mortgages and consumer loans. On mortgages, I would say that the pace is already matching the last year pace from the month of July. So this bodes well for the evolution into 2021. And in consumer lending, although we are below the previous year, we are clearly above the trough we had during the second quarter. And as Gonzalo has commented, we expect that this pace is going to increase once the lockdown is being gradually removed.On the ALCO portfolio, just a few comments here because actually we have a stable situation this quarter; same balances, the same metrics, the same maturity profile and sovereign exposure. I would only highlight that our willingness to add to that portfolio once we see clear steepening of the yield curve.Shifting now to the other side of the balance sheet on customer funds. You know that growth in the year has been driven by the excess liquidity of the system, thus we have strong growth in deposits. But this quarter, I would like to highlight the very positive evolution of our long-term savings business. We have positive market effects this fourth quarter of EUR 5.2 billion. This brings the total impact from markets on our AUMs to plus EUR 2.8 billion. That's completely reversing the losses earlier in the year. And also, more importantly, this fourth quarter with strong inflows, EUR 2 billion, the strongest quarter in the year. And this brings the total amount of inflows this year to EUR 3.4 billion.On the right-hand side chart, you may see the evolution of average AUMs, I would like to remark that by the end of period, if you look at the balances, you may see that those are up by approximately 7% compared to the average of 2020. So this also bodes very well for an evolution into 2021 of this part of the business.Let me now shift to the P&L, our quarterly review. I would say that the messages are broadly the same than for the whole year, continue to have core revenue growth. We have had some one-offs. I'm going to comment in a moment on NII. But even not considering those, core revenues have been up both year-on-year and also quarter-on-quarter. Fees continued to recover, up by 5.1% quarter-on-quarter and year-on-year, still impacted, sorry, by the evolution of our payments business. And on insurance, very strong quarter, supported by the MyBox commercial offer. On other revenues, I would remark the last SegurCaixa Adeslas earn-out. This has been a positive impact of EUR 135 million. And on costs, you may see that the fourth quarter, the downward trend has continued. And as a consequence, our core operating income has improved by 12% year-on-year or 11% quarter-on-quarter, quite significantly. Loan loss charges already been commented. This drives our cost of risk to 75 basis points for the year, well within our initial guidance. And on gains and losses, those impacts already commented from Comercia, plus EUR 422 million (sic) [ EUR 420 million ] and the Erste impairment minus EUR 311 million. Also some minor impacts from branch network restructuring on that line. And this brings the net income for the quarter at EUR 655 million, up by 49% compared to the fourth quarter of last year.Quickly, some comments on BPI, I would say that the broad message is the same. I will focus on the fiscal year here. We continue to see growth in the operating leverage in Portugal. We have core revenues growing by 1.8% in the year. And costs down by more than 5%. As a consequence, the core operating income in Portugal goes up by 16% in the year. You may see continued and broad-based loan growth across all segments, plus 6% in the year despite in Portugal there is not such a large government-granted loan scheme as in Spain. And we have built also a COVID reserve of EUR 97 million, and this brings the fiscal year result in Portugal at EUR 174 million.Now going into the details. On NII, down by 1% in the year. But as I said, with positive impacts this fourth quarter, up by 2.5%. From now on, we are accruing TLTRO III at minus 1%. Formerly, we were accruing an internal rate of return that was approximately 87 basis points. So we have here the impact from this. But even not considering that, NII would have been during the fourth quarter, broadly stable compared to the 2 previous quarters.On margins, I would remark that the back book yield is down by 2 basis points to 190 basis points. In this case, impacted by the before-mentioned loans to the public sector, that obviously at much lower yields than the average, and this has had this impact. And on the front book yield, although it's not included in the public sector. It's down by 25 basis points. But in this case, because in CIB, we had strong production at lower margins because we're mainly also liquidity lines. Without those impacts, the front book yield would have been broadly stable. I would like to remark that the new TLTRO III conditions will provide support for NII in 2021.Now on fees, where, as I say, we had a strong performance in the quarter, although in the year, down by slightly less than 1%. But in the quarter, you may see that recurring fees up quarter-on-quarter, year-on-year still with the impact mainly from the payments business. On asset management, quarter-on-quarter double digits, year-on-year also 6.2% up. And insurance distribution, as this MyBox commercial offer is gathering pace, up clearly quarter-on-quarter, well over double digits, and close to double digits year-on-year.On CIB, a weaker fourth quarter, but I would like to remark that for the year, wholesale banking fees have been up by 15%. On the right-hand side chart, interestingly, you may see our monthly fee evolution, excluding payment fees, and you may see that we -- despite the conditions and the circumstances, we have been tracking the performance of last year and actually even not considering the negative impacts from payments. Mainly because of the lockdown situation, our fee revenue pool is up by 3.4%, as I say, excluding payments. This shows the resilience of the franchise, clearly.A few words on other insurance revenues. I would like to remark here mainly record high life-risk revenues this fourth quarter, EUR 156 million. And this, together with a very positive evolution of SegurCaixa Adeslas equity acquainted from SegurCaixa Adeslas brings other insurance revenues up by 8.7% in the year. And in the right-hand side chart, you may see the evolution of our total insurance revenue. This is including NII and fees. But even with the negative impact on fees, you may see that it's up at 7% for the year.On costs, the trend is down. Costs have been down by 4% in the year. This quarter, also down. Personnel costs also adding to the tailwind. We had an early retirement earlier in the year and then still having some benefits from the large restructuring in 2019. And well, you may see that we have core revenues are more flat. And with recurring cost savings, this brings our core cost-to-income down by 2.3 percentage points to 55.1%. Those costs evolution has been better than initially expected, although this has been obviously assisted by what we estimate approximately 1.5% extra COVID savings due to the situation.Loan loss charges. On this front, we have had charges of EUR 321 million this fourth quarter. As commented, we have already built EUR 1.2 billion COVID reserve. We have made minor changes to our IFRS9 model scenarios. But the most important thing is that this quarter we have applied a proactive and prudent expert-based migration metrics within the performing portfolio that is driving our Stage 2 exposure up by approximately EUR 6.7 billion. There are obviously loan loss charges attached to this move. Part of those are COVID-related and generic reserves, COVID-related, but other loan loss charges also include a management overlay for such stage-migration.With all actions taken this year, plenty of actions with this COVID reserve, and this preventive move to Stage 2, we expect now a clear reduction of loan loss charges into 2021 compared to 2020.Balance wise, on NPLs, I would only like to mention the sharp reduction on the fourth quarter, approximately EUR 500 million, more or less half of this from disposal. So we have been able to dispose. There is a market for those assets. And this also shows that our marks are correct. And you see the NPL ratio at 3.3%, really a good result and at the same time, increasing the coverage ratio by 12 percentage points in the year to 67%. And you may see that the reduction is broad-based across all segments.A few words on moratoria. Some more details here. Already -- it has already been commented. The total stock now is EUR 14.4 billion. This is approximately 6% of the loan book. EUR 8.7 billion in Spain and EUR 5.6 billion in Portugal, a reduction of EUR 1.8 billion in the quarter. And most importantly, you may see a sharp reduction in Spain in the consumer lending moratoria. So this is a positive development. And well, now non-expired moratoria is facing interest payments in Spain and 65% in Portugal, and 99% are honoring the payment obligations. You know that we face mainly the expire of the moratoria in the first half of the year in Spain and 25% in the first half in Portugal. So we are having really good credit performance of those moratoria, even once the payment obligations have already resumed.Some words on liquidity. Record high liquid assets, EUR 114 billion. You may see the metrics for liquidity, at record highs also the liquidity coverage ratio, that is funding ratio and I would -- also in the central chart, I would like to remark the different layers of the -- our MREL stack. And you may see that on subordinated MREL, as an example, we have a ratio 22.7%, well above requirements and for a total MREL, that is also well above the requirements. We have been issuing in the market successfully this quarter EUR 750 million, ATI plus green -- EUR 1 billion green senior nonpreferred. And for the year, close to EUR 4 billion.Well, finally, on solvency, I would like to comment on 2 charts. This first one for CaixaBank Group. And then the second one a pro forma of the ratios with the integration of Bankia. On this chart, those -- the figures are ex IFRS -- transitional IFRS9, we ended September with a CET1 ratio at 11.97%. From there, we have added this quarter 28 basis points from the Comercia stake sale. Note that there is a revise -- revising, as they will have reduced the payout from approximately 43% with accruing to 15%. And this is why we have a higher Comercia impact. The quick fix for software intangibles, that is adding 21 basis points. And then very good performance in terms of organic generation, 55 basis points and also the revising of the -- this payout ratio for the first 9 months of the year, that is adding 8 basis points. We don't have value adjustments and other impacts this quarter, although the Erste impairment that has taken approximately 16 basis points is, to some extent, compensating the positives we have had.We end the quarter and the year with transitional IFRS9 CET1 ratio at 13.1%. And on top of this, we have 55 -- 55, sorry, basis points of transitional IFRS9 for a total regulatory CET1 ratio at 13.64%, which is quite a strong ratio.I would like to remind that the tangible book value per share is up by 11 basis points this quarter to EUR 3.49 and what Gonzalo has already commented on the payment -- the dividend payment of EUR 0.0268 per share to all shares outstanding after the merger.And as I said, I would like to bring you an update of the combined entity pro forma ratios. Those are also ratios excluding transitional IFRS9. The combined entity when presented was -- we disclosed figures for -- as of June '20. Remember, the CET1 ratio presented back then was 12.3%. Since then, we have had the following positive impacts. It's 18 basis points for the Comercia stake sale, obviously, with a lower impact once in the combined entity. The quick fix for software intangibles plus 22. The IRB models for Bankia portfolios already included in Bankia ratios at 38 basis points. And then we have a strong 76 basis points of organic capital generation and other positive impacts. So by the end of the year, the pro forma CET1 ratio of the combined entity is 13.9%. And from there, we have the regulatory and M&A impacts during 2021. For the regulatory impacts, we are estimating a negative impact into 2021 between 50 and 60 basis points. So this brings the total amount of regulatory impacts in line with our initial forecast. And then the well-flagged M&A impacts that were already disclosed last September. So pro forma at the end of 2020, considering those regulatory and M&A impacts that are going to happen in 2021. But by the end of 2020, we are with a CET1 ratio for the combined entity well above the upper bound of our target, so well above 11.5%.And well, finally, I will go through this slide, but -- not go through this slide, sorry, only to remark on the right-hand side chart, what we have achieved this year. Core operating jaws up by 3.9 percentage points; recurring costs down by 4, well beyond revised guidance during the year; cost of risk at 75 basis points, within target; and quite a strong reduction of NPLs, bringing the ratio down to 3.3%. So this clearly sets the stage for a successful merger with Bankia, that is expected to be closed this first quarter.So thank you very much, and we are ready for questions.

[Edward O'Loghlen, Director of Investor Relations]

Okay. Thank you, Gonzalo, and thank you, Javier. Before we start the Q&A, just let me remind everyone to keep your questions brief for the benefit of everyone on the call. I believe we have a queue of over 13 analysts. So operator, please proceed with the first question, please.

[Operator]

And the first question comes from the line of Maksym Mishyn from JB Capital.

[Maksym Mishyn, Vice President]

Thanks for the presentation. I will ask only 1 on the merger and capital. So it seems you are now in a better capital position than you were when you announced the merger with Bankia. Bankia has also surprised on the upside with its capital yesterday. And I was wondering now that your footing is more solid. And if you stay with the ratio above the higher end of the guidance following the merger, how could we think of the potential ways you could apply it? Could it be a more aggressive restructuring or probably more inorganic growth or shareholder remuneration?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Maksym. I think what you say is true, we obviously have better capital position than we had. Javier was pretty clear about it. And that provides us with more flexibility in all dimensions. And you mentioned 3 very relevant dimensions. At this stage, there's no decision, but certainly, we have more capital, and that's good news. We'll see, it's early days. We haven't closed the transaction. We haven't started the negotiations. So we're going to need to be patient, but clearly, we have more flexibility on all these fronts.

[Edward O'Loghlen, Director of Investor Relations]

Thank you, Maksym. Operator, may we move on to the next one, please.

[Operator]

And the next question comes from the line of Carlos Cobo from Societe Generale.

[Carlos Cobo Catena, Equity Analyst]

Two questions for me. One on TLTRO II -- sorry, TLTRO III. If you could explain a little bit your base case for 2021, you said you're increasing the accrual from 85-ish to 100 basis points, that should stay until mid-2021. And then what should we assume for the second half, are you still confident that you will comply with the second target for the eligible portfolio, and hence, maintain those minus 100 basis points, or that's not confirmed for now? That would be the first one. And the second one, if you could discuss your views on where the competitive dynamics in Spain, specifically on mortgages where we are seeing a very intense price competition as competitors fly to high-quality assets. And if there could be some pressure, not only on the variable rate portfolio because of the arrival, but also on the fixed rate portfolio, the higher rate mortgages reprice or refinance with yourself, with your competitors, if you see any risk of [indiscernible] there?

[Javier Pano Riera, Chief Financial Officer]

Okay. Thank you, Carlos. Well, on TLTRO III, well, we have the expectation to meet the benchmark. So this is our expectation. So far, you know that this benchmark goes from early October to end 2021 so far. Since early October, we are complying with it. So as you know, Bankia yesterday also commented was complying with it. So our expectation is that we can go for it. So this is our expectation. So, on this front, our expectation is that consumer lending is going to gradually recover once the lockdown is left apart to some extent or at least partially in coming months.And regarding SMEs, et cetera, I think that also we should need to factor also yesterday, Pepe commented in the Bankia presentation, the next-generation EU funds that also, as you know, with this mix of public sector and private sector also may offer some opportunities. So I think that this should be our base case. Note also that the ECB has -- is going to allow to increase the size. You know that they have changed a little bit the conditions, and we are planning to offer a larger amount in -- from March. For CaixaBank, now we are having a -- CaixaBank plus BPI approximately EUR 50 billion. So this will bring the total amount approximately to EUR 55 billion, 5-5. So this is the plan.On your second question on mortgages. Well, so far, we are being able to maintain margins. And I was just reconfirming the figures, but our new production of fixed mortgages is made at a gross yield of approximately 1.9% now -- sorry, 1.8% now, which is a margin of approximately 1.9% because that swap rates are negative. So it's quite an accretive margin. So it makes -- to compensate all, let's say, mortgage costs, et cetera, having a very good return on equity on that production.In terms of floating rate mortgages, margins are a little bit tighter. So the margin is approximately 150 basis points over LIBOR. So here, the margin is stated, and there is a more probably competitive landscape. But so far, as you saw in the chart in the presentation, we are being able to maintain the production of the past year, which I would say that it has been a very positive surprise, considering current circumstances. And so far, we are being able to maintain margins also. And this is the plan. So it's not easy, but this is the plan. And so far, we are not seeing any kind of acceleration of early redemptions, or let's say, early cancellation of mortgages or refinancing. So we are not seeing this so far. I think that with this, Carlos, probably I'm answering your questions.

[Operator]

And the next question comes from the line of Andrea Filtri from Mediobanca.

[Andrea Filtri, Research Analyst]

Questions on capital and on guidance. On capital, can you update the 2021 expected regulatory headwinds. We've just heard one of your competitors actually talking up the impact from the low default portfolio. And also, how much is the contribution from the change in the consolidation of the deposit guarantee fund into the quarterly capital book for Q4? And what should we expect from the same figure in 2021? And finally, are you providing any guidance on main P&L trends for 2021?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Well, let me answer at once one thing. And with respect to guidance for 2021, we are not in a position to anticipating our guidance. We have a transaction -- a very large transaction that hopefully we'll be closing by the end of this quarter. And I think it will be premature now for us to provide guidance. I think we will not be doing you a favor as we -- obviously, when we provide guidance, we like to meet it. And in any case, it is after an extensive work, which is too early to do because we have limitations on what we can work together with Bankia at this stage. So just apologizing for not being able to be as other years providing guidance at this point, but I'm sure Javier can comment and be as helpful as we can on the environment and the rest of your questions, Andrea.

[Javier Pano Riera, Chief Financial Officer]

Andrea. Well, yes, I commented, those 50 to 60 and negative -- minus 50 to minus 60 basis points of regulatory impacts into 2021. You know that when we presented the transaction, we commented about plus 10. Now we have already delivered plus 60. So we have minus 50, minus 60 remaining. So we are broadly in line with what we announced back in September. So this is our view. We are conservative. The main impact, as you know well, is the impact on the low default portfolio, mainly in CaixaBank, although Bankia also yesterday disclosed that they will have some impacts from that part. And we expect that this will come in the first quarter. So we are waiting for the final letter. At least the part for CaixaBank because the part for Bankia is probably coming later once also we are integrating advanced models, et cetera. So probably this part will take longer. But -- so with certain degree of leeway because it's a complex process. But apart from CaixaBank almost sure that it is going to be in the first quarter.To your question about the deposit warranted fund, this is not in our numbers. So it's not in our fourth quarter numbers. So it's not included. And there is some expectation that this may come, but it's not clear. This will add between 5 and 10 basis points, but it's not clear and that's it. So into 2021, we face also the positive impact. This is already included in this impact of minus 50, 60 of the IRB models in the part of the mortgage portfolio of Bankia, mainly that coming from BMN and other optimization here and there. Now I would say that this is the impacts and longer-term are not included into those minus 50 to minus 60 basis points I commented. We may have a positive impact from the IRB models from BPI. We have already applied ECB for this, but we don't have certainty that this will be included in 2021, although this will be a positive impact of approximately 10 basis points whenever it comes. So with this, I think, Andrea, that I am answering your questions.

[Andrea Filtri, Research Analyst]

Just a very quick follow-up. Given that you don't provide guidance for 2021, what would be the automatic impact from the current Euribor to your NII for 2021?

[Javier Pano Riera, Chief Financial Officer]

Okay. Good question. Well, first thing on this, let me elaborate a little bit because I can give you a short answer, but we have more and more fixed loans. You know that we are growing in terms of the new production of mortgage loans at fixed rates. And we have the figure somewhere. No, but if I don't remember -- if I remember well, it's approximately 35%, that is at fixed rates. So our sensitivity is a little bit less to a little lower to these -- to those impacts. And also, keep in mind that on the floating part, not only is 12-month Euribor, we have also 3-month Euribor, 6-month Euribor. And then the year-on-year, the negative impact from 3- and 6-month Euribor is going to be lower because, first thing, the repricing has already happened. And second, there is a smaller negative impact on those tenures. And so this -- just to give you some more color to my short answer. No, we're expecting that all in all, and considering today's forward year curve, we are going to have a negative impact on NII of approximately minus 1%. So this is approximately the -- our expectation.

[Operator]

And the next question comes from the line of Daragh Quinn from KBW.

[Daragh Joseph Quinn, Analyst]

2 questions, one on capital and then a second one on restructuring. And on capital, just wondering maybe if you could be a little bit more specific about the outlook for 2021 and the comment, I think, Javier, you said to be well above the -- I'm assuming that's the 11.5% target that you've set at the high end of that. So I just want to clarify if that's what you're referencing it against. And if you can give us any idea of what kind of CET1 ratio we could be looking at by the end of 2021? And then a second question just on the restructuring. I mean so I know, obviously, what you've announced in terms of the merger with Bankia. But just want to try and get a sense of how much of the reduction in employees that you're targeting is purely just as a consequence of the merger? And how much, if any, is associated with the ongoing move to digital banking from your client base? And therefore, how much further post the merger could you see reductions potentially in the workforce?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Daragh. Maybe I will just start with the second question and leave Javier with the first. Restructuring that we are envisaging is merger related, full stop. We have I think both, but I can speak more for CaixaBank being quite active in terms of headcount reduction in the absence of this merger. Remember the program that we had in 2019, which was very significant with over 2,000 people affected. And early retirement, we are not talking in the first quarter of 2020. So what we are looking at is really a one-off related to the merger. And in terms of capital, Javier, clarify your words, you're becoming like a draggy or laggard?

[Javier Pano Riera, Chief Financial Officer]

And I thought it was clear enough, but -- well, we -- this is why we wanted to disclose this slide with this capital level because I understand that that offers a lot of attraction on questions. So I -- it's clear, so we are ending at a comfortable ratio at what, 13.9% on a consolidated basis. And from there, we have those spending 50 to 60 basis points negative from regulatory impacts and well you have the M&A impacts, were estimated at approximately 150 basis points. So this is -- that's clear. So this makes approximately because, well, as you can imagine, pending the closing and with all those fair value adjustments still pending. Some of those, depending on market levels, the valuation of some portfolios and liabilities, et cetera. But well, if you add the numbers, you see clearly that we are well above 11.5%. That was the upper bound of our targets announced. Remember, between 11% and 11.5%. So this positions us in a comfortable position ahead of the transaction. And I think that we have already been commenting during the call what are the different optionalities we have here, and it's early days. So we need to close to see which are the final numbers. I would only like to point out that this does not include any kind of organic capital generation from 2021 because we are presenting here in this capital level, the numbers for pro forma the end of the year of 2020.

[Daragh Joseph Quinn, Analyst]

I'm sorry, just one final kind of follow-up. Just to be clear, those numbers don't include any model approvals that are still pending at Bankia?

[Javier Pano Riera, Chief Financial Officer]

No, no. Well, this includes all impacts expected for the combined entity. So it includes some positives on that front from models that need to be approved from Bankia and also other TRIM impacts in CaixaBank and also in Bankia. That includes our overall assessment for all the, let's say, regulatory impacts for the combined entity for both.

[Operator]

And the next question comes from the line of Britta Schmidt from Autonomous.

[Britta Schmidt, Non]

I've got 2 questions, please. The first one will be as a follow-up on the TLTRO and net interest income. You seem to be a bit more optimistic on being able to deliver some corporate growth next year. But should we not assume that maybe some of the benefits that we see as TLTRO III as a result of loan growth could be competed away because I would believe that everyone will be fighting for volumes and the tailwind of ICO loan will disappear? And then the second question is on the Stage 2 loans. Can you give us a little bit more color as to what you have reclassified to give us a bit more comfort that we can consider this to be a conservative input and maybe also if you have any idea as to what movement you expect there into Stage 3 would be appreciated?

[Javier Pano Riera, Chief Financial Officer]

Thank you, Britta. Well, on TLTRO III, what we see is that in the fourth quarter, we have had better dynamics than probably what we were expecting late in the summer. So this is what makes us a little bit more optimistic and also seeing the way that as I mentioned, the next-generation EU funds will be implemented also. We think that we may find some opportunities on that front, mainly on the SME world that will help us to reach that benchmark, that is so important because it's such a large amount of such a large impact. That is obviously quite important to be there. To worry about competitive pressures is normal. But I would say that so far, the landscape, although extremely competitive, I would say that we are managing it well. And you see in terms of spreads, by book and from book also being fairly stable this fourth quarter, although there were some impacts, but mainly related to some specifics. So I would say that in general terms, yes, we are a little bit more positive than 3 months ago. But because, as I said, the dynamics that we have seen are also more positive. On Stage 2, this is an important one. Here, we have been proactive on that front. And to give you some more details. What we have done is we have considered loans in moratoria. We have reviewed those loans, and we have applied some criteria here. We have considered, for example, loan to incomes over 30%. We have considered borrowers that were unemployed or in furlough schemes. So we have another few metrics, but we have considered those to move those balances to Stage 2. Those are, let's say, are paying or preferably performing, but let's say that, clearly, there is an increase of credit risk considering those factors. And also in the case of ICO loans and SME loans, we have considered those sectors that we have leveled as high-risk sectors and also for self-employees that are working on those sectors and also self-employees that at the same time have mortgage moratoria. For example, you may have an ICO loan and then also at the same time a mortgage moratoria. Obviously, there is a sign of an increase of the credit risk. So we have -- what we have done is to move those balances to Stage 2, also with a pool effect because as also Bankia explained it yesterday other exposures of the same borrowers that at the same time are being pooled by this decision. So as a consequence, we are moving -- well, the net effect for the quarter is approximately EUR 6.7 billion, that has been moved to Stage 2. I would remark that approximately 80% of those balances being moved -- close to 80% are collateralized, being the collateral or a mortgage or the collateral being the ICO warranty. So well, this is important. And while as a result of this, we have loan loss charges attached to that stage migration. Some of those loan loss charges add to our COVID reserve because as your role ran the IFRS9 models into a loan portfolio with higher weight of stage 2, that results into higher provisions. And this is why our COVID-19 reserves go up this quarter. And then on top of, there are like some specific provisions that apply. So approximately, the impact in terms of charges is close to EUR 200 million because of this move to Stage 2. And well, we think that with this, we are well-provided. And I would only like to remark here, Britta, that the move to Stage 3 is already covered with the reserve we already built earlier in the year for COVID purposes. So this is why our assessment is that considering all actions taken, and all those are preemptive because as you see, we have a 3.3% NPL ratio. So actually, we don't have new NPL formation, but we know that is going to happen into 2021. But we have already reserved for Stage 3 migration, and now we have already reserved for Stage 2 migration. And this is what makes us comfortable to give this kind of soft guidance, but I think it's a strong one, strong message that we expect loan loss charges to be well below -- in 2021, to be well below 2020 levels.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

If I may, Javier, yes, to say that -- Javier explained it very clearly, but I just want to put my word. Again, this is a sign of prudence. We're not seeing anything that particularly worries us. At this stage, the outlook for 2021 is certainly better than what we were expecting during the last months. We do have, in the short-term, obviously, higher impact from the pandemic, but we actually have seen a fantastic fourth quarter from our point of view, P&L, balance sheet and NPLs. And we're taking here a very cautious measure of trying to anticipate the impact on this movement from Stage 1 to Stage 2, which means an increase in credit risk, but it doesn't mean there is a lack of payment capacity. So in fact, the large majority of these loans that have -- we have sort of been credited in advance to Stage 2. Our expectation is that they will stay there and in due course will come back to Stage 1.And as Javier said, migration is the part of it, and we will migrate, obviously, by definition to Stage 3 in due course is very well covered by the provisions that we have for the COVID, EUR 1.25 billion. Basically, repeating Javier's, but putting also my feeling, this is not a sign of concern, quite the opposite. And that's how I think you should take it.

[Operator]

And the next question comes from the line of Fernando Gil from Barclays.

[Fernando Gil de Santivañes d´Ornellas, Research Analyst]

Have 2 quick questions, please. One is on fees. The first part is, how sustainable is the AUM growth that we are seeing, especially in this quarter, with 6% AUM reported up? And on banking fees, we see that quarter 4 fees still are well below quarter 4 '19. And if you could provide any guidance on how the activity is impacting this line? And if the activity just reopens a little bit, how can this improve? This is one part. The other question is after this impairment that we have seen in Erste, what is the current valuation that you have for this stake? And what is the strategy for this stake?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Fernando. Maybe I'll -- on Erste, Javier will give you the exact number, but there's been no change with respect to our strategy about Erste Bank. Nothing has changed. We've just taken this precautionary impairment.

[Javier Pano Riera, Chief Financial Officer]

Fernando, let me start with your question in fees. Well, on AUMs, we have had this very positive growth in terms of inflows in the fourth quarter, and we have positive momentum. So we are seeing that this is doing well. You know the environment in terms of rates, you know our business model, you know how well equipped from a commercial point of view we are in this business. And we see that there are -- there is further upside in terms of balances. So I pointed out this gap between the average AUMs in 2020 and the end of the year balances, which is close to 7 percentage points. So markets permitting, we think that we can do well on that front. And you know that this part of our fee revenue pool is already slightly more than 1/3 of our total field revenue pool. So it's approaching actually close to 40%. So doing well is -- on that front, is extremely important for incoming fee revenues.On activity, you mentioned, well, this is why I wanted to disclose that chart that already shows the evolution of fees not considering the payment business because it's the part that has been clearly affected year-to-date. And what -- this as long as the lockdown gradually ends, we expect that part to recover. There are obviously different reasons, not for the negative impact, but on one hand, you have lower new issuance of credit cards, it's happening. So at the end of the day, it's something that we have had, but this is not the main impact. I would say the main impact is that you have lower traffic in point of sales terminals and also a lower use of ATMs. And I will remark here that the use in ATMs is also very affected by tourism. And you know that as foreign -- we have not had foreign tourism this year. And this affected significantly also tourism is affecting following a change, let's say, fees on that part of credit cards. So I think that as long as this gradually recovers, we may see also an additional tailwind to our fee revenue pool.And the other parts I think that have done well. Considering the circumstances, I would remark CIB. I don't know to what extent we will have such a good year in CIB in 2021. We will do our best. But you know that it's always more volatile. And regarding Erste, if you -- if I may, I would refrain from giving you the exact figure because what you know that Erste is still pending to present results in a few weeks, and I would rather -- but you can -- I would rather skip that one. But you can do the numbers now because in our public accounts, what we have published in the past, and you have the impact that we have already done this quarter.

[Operator]

And the next question comes from the line of Mario Ropero from Bestinver Securities.

[Mario Ropero]

My first question is on costs. I know you don't provide guidance, but maybe any color could be useful. You think that the fourth quarter cost base of CaixaBank stand-alone is a good reference to think about 2021, leaving aside any implications of the merger. And then if you could comment perhaps on the general outlook for VidaCaixa into 2021? Generally, given the very tough rate environment, do you think that the MyBox product would continue to drive some growth? I mean, any comments here, I would appreciate it.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Well, let me give a word on VidaCaixa. Obviously, VidaCaixa this year has included the earn-out from Adeslas, and this is the final year. So you should not incorporate that going forward. I think Javier has been clear on that. And that is sort of a one-off. On the rest of the business, VidaCaixa has made a major transition to the world of lower [indiscernible] rates also in the long-term. And on the same impact, VidaCaixa is actively growing, and this has been the case if you see the figures for 2020 and even earlier. It's been actively growing other products that are related to a bit more complex on annuities, incorporating unit-linked and a variable component at the same time providing some certainty on a -- given a rental payment, et cetera. So I'm quite confident that despite the negative rates and the [indiscernible] rates in sort of the long end of the curve in Spain, VidaCaixa has been able to already incorporate new products and continue to see structural growth coming from VidaCaixa on that part of the business.Then you mentioned MyBox, which includes both the risk protection and also the non-life that comes from SegurCaixa. And you see the dynamics of MyBox. They are amazing. It's been a total commercial success. Very profound one. And hence, we have quite good level of confidence of continued outperformance in that part of the business despite the different consequence. On top of this, at some point, and we'll see when we will be able to extend these to the large organization. With the Bankia distribution network, there's obviously very significant upside. We discussed revenue synergies when we presented our transaction. And obviously, market tends to be quite skeptical on revenue synergies, and it will be our burden to prove the market wrong on this one. It will take some time. But I feel as good, if not more, than when presenting on the potential that we have on this part of the business in terms of further enhancement of revenues, Mario. So that's the color I will give, and I'm sure Javier can complement.

[Javier Pano Riera, Chief Financial Officer]

No, only to add, if I may, on insurance, no, that you asked it about MyBox. Well, MyBox is now approximately 60% of the new production. So obviously, we continue to produce insurance product and distribute insurance products on, let's say, bespoke basis, but the package of MyBox is already 60%, and it's growing. So we started the year at 30%, and it's now 60%. And this also includes life risk products. So it has been a great success in a very difficult year. So our expectation is that once things keep normalizing, we will be doing even better. So we are quite positive on the prospects for the future, not only 2021, but also for the future.And on costs, well, the fourth quarter is not the benchmark for the evolution into next year because I -- this is why I wanted to highlight in the presentation that we have had some extra tailwind from COVID on that front, positive. Because what we have had premises closed, we have had savings in energy, no travel, no client events, et cetera. So we have had savings that, overall, for the whole year, we have estimated to have contributed approximately to -- and it's an estimate because it's so difficult to determine, but it's our best estimate. Have contributed to an additional 1.5 reduction -- 1.5% reduction of our cost base. So I assume that into 2021, part of this, let's say, COVID-related savings will be removed.And well, on costs our only -- keep in mind that earlier in the year, we said that you should think about our cost base into 2021 to be lower than costs in 2019 and what now we think that we see a clear upside at this moment compared to those levels, but we still need to work further into our plans for 2021. I think that with this, Mario, I have helped you to give you some, let's say, soft guidance.

[Operator]

The next question comes from the line of Sofie Peterzens from JPMorgan.

[Sofie Caroline Elisabet Peterzens, Analyst]

Sofie from JPMorgan. I had a question on deposits and charging negative interest rates on deposits in Spain. We've seen some of your competitors starting to do this. What's your view on charging retail customers or deposits? And then my second question would be on risk-weighted assets. They decline quarter-on-quarter in the fourth quarter. What actually drove this? And then just a final question on the capital headwinds of 50 to 60 basis points that you guide for. How much of -- or does this also include the derivative impact or the change in regulation on derivatives at one of your peer is guided for? That's all my questions.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Sofie, if I may answer the first question. We're not planning to charge retail for deposits in terms of passing on negative rates to retail, that is not the strategy. We want retail to be profitable on a sort of single whole customer view, and that's what as -- is behind our change in fee policy, what we call the area which is basically given no fee -- no maintenance fees charges to clients that have an appropriate level of relationship with us that makes having a holistic view of the customer are profitable. We have an advantage, I think, certainly, vis-à-vis banks and other markets, but even in Spain, we tend to be able to sell more profitable products to our client base than others. Obviously, the insurance business that Mario was asking precisely before you is a good example. So that strategy works for retail. And we still feel that charging negative rates is not a good idea for many reasons.On the other hand, we are charging negative rates to the business sector. And obviously, we started some years ago with large corporates, and that has been -- sort of the first hole has been going down, and the business sector is certainly going to be up from certain level being paid for this excess liquidity that they have, I think, generally with us with the system. But I still see a clear line between corporates and SMEs and retail.

[Javier Pano Riera, Chief Financial Officer]

If I may, Sofie, on this weighted asset reduction for the quarter, I would say that the main driver has been in the maturity of some high-density loans, high risk-weighted asset density loans. And also note that we have lower risk-weighted assets from the Comercia disposal and also the Erste impairment and -- but some other impacts here and there, but those probably are the main drivers.And to your last question about the impacts -- relative impacts from derivatives? No, we don't have -- as you know, we don't have a large franchise like BBVA on this business, and we don't have an impact or a material impact in those minus 50 to minus 60 basis points.

[Operator]

And the next question comes from the line of Ignacio Cerezo from UBS.

[Ignacio Cerezo Olmos, Executive Director & Equity Research Analyst]

A couple of quick questions from me as well. The first one is on the public sector lending growth we have seen in the quarter. If you can give us some information about the margins you're charging for that? And if this is planned to continue? And so far actually could be a replacement for ALCO portfolio unlike the governments actually or kind of local governments even are finding more and more with banks wherein you have to come to the market more often? And the second question is on the asset quality. You've seen the message seems pretty strong actually, that provisions are going to go well below -- 2020 number has come even better actually than the market was expecting. So if you can share with us again your NPL assumption for the next couple of years, and what kind of protection you're getting from the government guarantee to be that sure that the cost of risk is not going to go higher again?

[Javier Pano Riera, Chief Financial Officer]

Ignacio, well, those are, as I said, short-term loans, maturities between 18 and 24 months and what there was the chance to provide, let's say, support to the public sector and also public sector here include mainly regions. And well, the yields are extremely low. But as you know, clearly accretive compared to the balances we are depositing at ECB and also to the levels of Spanish government bonds with those maturities. So it was a good opportunity. Our CIB people moved quickly to take advantage of that opportunity. And that's it. So we don't expect that this is going to be recurrent in the future. It was probably one opportunity that raised it, and we took advantage of it. But well, it's quite a large balance that has been placed at quite an attractive yield compared to the ECB deposit facility. And on asset quality, well, we don't have a forecast for NPL ratios into 2021 and so on in the following years. But clearly, it's going to raise. So it's clear. But to what extent all actions that are being taken by the public sector and also the ECB, providing liquidity, et cetera, is going to, let's say, prolong that NPL formation even further into later. It's an open question, but our central view is that we should be reaching the peak of NPLs in the second half of next year. So this is our main assumption. Although, as you know, we need to refine our numbers once we integrate Bankia and all portfolios. So I think that this is the plan. I would only -- I understand that probably it surprises a little bit you this confidence we have about loan loss charges to be below 2020 levels. But you need to keep in mind the strength of our portfolio, not only actions already taken in order to increase the coverage ratio. But the underlying strength, and we have -- just to remind a few figures, but we have approximately 60% of the portfolio that is being collateralized. Being collateralized with a mortgage or because we have now a government-warranted loan with government warranty. And on top of this, we have approximately 7% of the loan book that is being granted to the public sector. So this makes only approximately 1/3 of the portfolio that is unsecured. So this already tells you about the underlying quality of the book. You know that the LTVs are so low for the whole portfolio -- for the whole mortgage portfolio, the LTV is 52% for the -- the LTV of the portfolio -- the mortgage portfolio with moratoria is slightly a few percentage points higher than this 52%. And remember that also we are disclosing this 10% of the loan book with high COVID impacts that if you look to the details, you will see that 40% is collateralized. So at the end of the day, all those factors is what drives our view that 2021 should be a better year. Ignacio, I hope that it helps.

[Operator]

And the next question comes from the line of Alvaro Serrano from Morgan Stanley.

[Alvaro Serrano Saenz de Tejada, Lead Analyst]

Now I'm hearing -- Javier optimistic is very refreshing. Just 2 follow-ups on that optimism, which I share, by the way. On the provisions well below 75 bps, this is a follow-up, I mean, if you're confident with presumably your -- you've added a sort of a margin of safety and given the uncertainties there is today. And the sort of merger provisions you've taken to front-load the lifetime provisions from the Bankia side, presumably, I mean, there's a reasonable chance that we could even see normalization of provisions this year. Because if I look -- if we look at U.S. banks as regional, even BBVA as well, everyone is beating, but you have on top of that the merger provisions. So that's question one on -- am I getting ahead of myself? Or where do you see the risk to the upside to the downside? And second, on revenues, again, I know you haven't given guidance, but the trends look like there's going to be decent growth because you said rates will impact 1%. Volumes are going to grow, maybe not a lot, but if you're going to accrue the TLTRO, are they going to grow? The exit strength on fees is clearly strong. And the comps are relatively easy. So am I missing something on revenues and maybe a mix effect or something that I'm missing?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, Alvaro. I think you might have taken a too optimistic view of Javier. He can be optimistic, but not that. But anyhow, I would say, normalization...

[Alvaro Serrano Saenz de Tejada, Lead Analyst]

I usually see him more optimistic.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

No, but it is certainly refreshing. I think rather than optimistic, what we've seen is now 9 months of this crisis. And obviously, we now have analyzed things top-down, bottom-up, from the left, from the right and one way or the other. So we have still uncertainty as how exactly the pandemic would evolve. But we know it's going to end, thanks to the vaccines. And then we'll have to see how quickly. And then the other point, which is very relevant is the public policy response. And we all would have liked some things being done different, but what is obvious is that, overall, this has been a major factor supporting the economy, supporting families and supporting companies. And hence, limiting the impact on banks from asset quality problems. This is basically moving the burden of all this from the private sector to the public sector. And we all know that the public sector is also being aided by Brussels and Frankfurt to increase public debt policy, et cetera. I think with all the problems that we could identify in specific things, overall, the plan is working very well. And I think now it's pretty safe to assume that this public policy is going to be in place for the months that we need it to be. There will be damage. There's no question. And it will be unfair if there's no damage because some companies will have to exit the business, and that's part of any crisis, but it's certainly of a different size. And what we are struggling to think is how can we be more conservative with the information we have. And this is the result of our -- of that is the results we present today. And I think that's what is behind Javier perceived optimism. I think it's confidence now going all the way to normalization of provisions of 2021. I think it's a scenario you cannot discard, but I don't think today, from us that still are a conservative institution, would say that's the base case. We need to have a more positive and clear sort of view of 2021 and 2022 to get there. So from being below 2020, clearly below to normalization, I think it's still too much of a gap. And anyhow, I think your comment on rates, 1%, maybe you want to clarify that, Javier because on the revenues, et cetera.

[Javier Pano Riera, Chief Financial Officer]

It's on the rate front. From market rates, this is the impact. Then we need to see, which is the impact of all the, let's say, the pressure of the new production on -- in terms of margins, in the competitive landscape. So I think that the TLTRO III target is so sweet that -- I think that we should not be missing it, and we see positive momentum to be there. And so far, we are there, as I said, but the only -- just to give you not such all positives, but to what extent margins may be impacted probably is the main question mark, just to give you another potential headwind. But it's not our view. We -- that so far it's our strategy that -- to defend margins, and we have been able to do so in the past in difficult circumstances, even in current circumstances. So I expect that we'll be successful, but anyhow this part of the question is -- it's an open one. But yes, on the other front, I mean, on fees and insurance, is probably where I am more confident that we can deliver really good result. And this positive starting point in AUMs is a very important one. And seeing the dynamics we are having in that part of the business and also in insurance, in general terms and the success of MyBox. And this kind of feeling for protection that look people just looking for some kind of protection and the fact that you can provide solutions on that front is doing really well. So I think that we are quite optimistic and with all the caveats with the merger now. And to what extent we are going to be fast enough in the process to deploy all our commercial practices into, let's say, Bankia clients. I think that those are probably the main customers. But so far, quite, I -- will not say optimistic but confident.

[Edward O'Loghlen, Director of Investor Relations]

Unfortunately, we've run out of time. So we have just time for one more, operator.

[Operator]

And the next question comes from Marta Sánchez Romero, Bank of America.

[Marta Sánchez Romero, Director and Analyst]

A quick one. Where are we going to get an opening balance sheet for the combined entity with details about the PPA and impacts on the combined P&L? And the second one is on real estate provisions. We've seen an increase to EUR 88 million this quarter. What explains that? And related to this, we read in the press a few months ago, that there were -- there was a conflict around valuation at your SPV with Lone Star. Have you taken any impairments there?

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Javier, go ahead. For April, we promise we will have a proper opening balance sheet, hopefully. If we manage to close the transaction, we get all the approvals, that should be the case.

[Javier Pano Riera, Chief Financial Officer]

Yes, this will be the case. So I think that probably when we reconvene in April, then we can comment. So probably it's going to be by then because, well, it's not a single process. So it's not simple. And on real estate provisions, well, at the end of the day, it's taking a conservative stance towards our exposures. And -- our -- with forecasts we have on real estate prices, that actually, we have slightly improved those this fourth quarter. But what, as you know, and with good operating performance, we thought that it was prudent to further reinforce our provisions on that front.Well, and actually, on Lone Star, we have had no impairments and no impacts. So what -- the press always discloses things, but there is a contract that rules our relationship once the transaction was closed, and you always have to adjust a few things and have some kind of discussions, but I would say that as business as usual.

[Edward O'Loghlen, Director of Investor Relations]

Thank you, Marta. Thank you, everyone. It's been a pleasure to host you once more, and we should reconvene next quarter. For those who are still on the line, I will personally call you up after this call. Thank you very much until next quarter.

[Gonzalo Gortázar Rotaeche, CEO & Executive Director]

Thank you, everybody.

[Javier Pano Riera, Chief Financial Officer]

Thank you.